Tabcorp takeover spells jackpot for Tatts shareholders

Tatts investors look set to win big from the Tabcorp deal and the benefits could balloon should a rival bid arise.

Tatts CEO Robbie Cooke. (Darren England)

As the ACCC looks at the Tabcorp takeover of Tatts, there is an argument which says this is one industry where you want to curb competition, so that permitting a single regulated monopoly might make sense.

Competition is meant to be good for consumers but, from a social welfare perspective, maybe we don’t want to encourage consumers betting their life savings away, so, on that argument, the ACCC should wave this one through.

The deal has officially put Tatts (TTS) into play, so, if there is anyone who wants to get control of its lottery business, now is their chance.

This accounts for around 70 per cent of Tatts operations and will account for around 40 per cent of the combined business.

For Tatts shareholders it’s all upside from here — they get 58 per cent of the combined $130 million in synergies and if the lottery business is worth so much, then maybe they will get a rival bid. This will have to come for the whole company.

The deal was hammered out last night in the Exhibition Street offices of UBS with Goldman and the Tatts team and respective lawyers from Herbert Smith Freehills and Clayton Utz spending much of the evening tying up the loose ends.

Last time around it was Tatts’ Harry Boon who kicked off the “merger of equals” talks and this time the takeover suggestion came from Tabcorp’s Paula Dwyer who wrote to Boon three weeks ago with the deal.

Gilbert + Tobin’s Gina Cass-Gottlieb is advising on the deal and she is more likely to argue that a national wagering monopoly is increasingly being swamped by rival fixed odds betting from corporate bookmakers.

The massive increase in corporate bookmakers is providing real competition to a combined Tabcorp (TAH) and Tatts and it is fair to say the market has changed dramatically since 2006 when the ACCC stopped Tabcorp from buying the Queensland TAB.

In those days, Tatts and Tabcorp also controlled the non-Crown poker machines but, of course, that has changed too, with the Victorian Government handing control to Woolworths and ALH’s Bruce Mathieson.

On this score, the ACCC is likely to let this deal through.

There are some loose ends which will require some cleaning up, like Tatts proposed deal to extend its poker machine monitoring business through the $100m acquisition of Intralot’s Victorian business.

Given that Tatts is also involved in the poker machine repair business in Victoria, that deal was already having problems with regulators. The deal has the backing of two big Tatts shareholders in Australian, Super and Perpetual.

Perpetual’s head of equities, Paul Skamvougeras, said in a statement: “We are in favour of the deal — the synergies are material and it’s great to see them being unlocked for both sets of shareholders. The terms are particularly attractive for Tatts shareholders and the Tatts board and CEO should be commended for prioritising this over their own positions — they’ve set a great example for other boards and management teams.”

Tatts will only get one board seat, its chair Harry Boon, and, compared to last time the two talked, social issues haven’t made an entrance.

The two companies last year spent $1 billion on the racing industry and the deal will boost this by $50m.